It happens to smaller businesses, too. Keep your contracting company in mind as you read these examples.
The Collection AgencyA competent, well-connected credit manager formed a company. From the moment the doors opened, it was a runaway success. For four years, there was continual growth. More employees were added and the office space doubled.
Then things slowed and some months later there was an actual plateau. Finally, volume began to slide.
At first, the owner thought it was a “minor glitch” on the screen. When the downward slide continued, he called in a marketing consultant.
The analysis revealed that the success of the business was due mainly to his excellent networking over many years as a credit and collections manager for a large company. Then some of these helpful associates took new jobs and their replacements had their own vendors. Others retired, a number of businesses merged, and several excellent accounts closed their doors.
In short, the collection company ran out of what can be called “goodwill capital.” It used up its long-time relationships. This can happen when hvacr technicians decide to branch out on their own, taking a number of customers with them.
The marketing consultant also discovered that with the immediate influx of business at the beginning and the quick growth, the company had never marketed itself.
“Frankly, we didn’t even think about it,” said the president. “Besides, we didn’t need it. We had more business than we could handle for a long time.”
The Networking GroupThe experience of the networking firm was quite different. It took nearly 20 years for sales to hit the wall. After enjoying years of growth, sales slowed and then almost stopped over a 12-month period.
In spite of glowing customer satisfaction reports, new customers were few and far between. “I’ve tried to stand back and assess what happened,” reported the ceo. “I can’t figure it out.”
Like the collection company, the networking company had never felt the need to market itself to differentiate itself from the competition and build brand image.
The Killer CurveEach of these companies was experiencing a predictable phenomenon: the “Killer Curve.” In most cases it appears to be a Bell Curve. There’s a period of growth that’s sometimes slow, but many times quite rapid that is generally driven by goodwill capital.
This is followed by slower growth that is often “explained” by changes in the market, the entrance of new competitors, or both.
The next phase is sales recognition, a time when business plateaus.
This leveling off (the top of the bell) is often viewed with some concern, but is generally seen as a temporary situation.
Finally, the curve turns downward in terms of sales or profitability. Once decline sets in, it is difficult for companies to take the steps necessary to solve the problems, mainly because they have difficulty identifying them.
Implications Of The CurveIn the cases cited previously, the drive, talent, and experience required to start an enterprise was not enough to keep them going. While this is often pointed out, entrepreneurs may believe themselves to be the exception to the rule.
There’s a tendency to be seduced by the growth. Without an understanding of what is fueling sales, there’s a tendency to believe that the “magic formula” has been discovered.
Preoccupation with early growth can mask what lies ahead, and there seems to be a failure to recognize what drives initial growth.
Short-term thinking then becomes long-term strategy.
There’s no marketing strategy. In both of the case studies, there was no marketing plan. More precisely, there was a lack of understanding of the role of marketing. It seemed that the entrepreneurial attitude dominated the organizations to the point that their total emphasis was on “making sales.”
There was no recognition of a need to create brand identity that differentiated the company and established in the customer’s mind the benefits of doing business with one particular firm. This appears to be the blind spot.
In the early 1980s, a typewriter service company was the largest in the Northeast with service contracts on 25,000 machines. Rather than seeing themselves in the service business, the company had built its identity on typewriters. Attempts to transition into other office machines failed because the customers’ picture of the company was indelible.
Amazon.com has managed to avoid becoming equated in the customer’s mind with “books.” It is the company’s ability to deliver extraordinary service that gives it its brand identity. It can sell music, electronic equipment, and just about anything else. It has that ability built into its identity.
It isn’t just start-ups that fall victim to the Killer Curve. Companies that have been in business for decades can experience its effects:
- Companies that have “more business than we can handle” assume the sales curve will go up forever.
- Companies that rely on acquisitions, either of salespeople with a book of business or competitors, seem to believe that the infusion of new business equates real sales growth.
Is there an inevitability to the Killer Curve? Only if marketing is missing from the entrepreneurial plan. Leave marketing out and chances are, the killer will strike with deadly force.
John R. Graham is president of Graham Communications, a marketing services and sales consulting firm. The company’s website is www.grahamcomm.com.